Deck 16: Cost-Volume-Profit Analysis

Question 1

In multiple-product analysis, the break-even units for each product will change as the sales mix changes.

Answer 1

True

Question 2

The profit-volume graph depicts the relationship among cost, volume, and profit.

Answer 2

False

Question 3

Units to earn target profit equal total fixed costs plus target profit divided by the contribution margin ratio.

Answer 3

False

Question 4

In a CVP graph, the intersection of the total costs line and the total sales revenue line is the break-even point in units.

Question 5

Income taxes are generally calculated as a percentage of income.

Question 6

The break-even point is the point where total costs equal sales revenues.

Question 7

Uncertainty regarding costs, prices, and sales mix affect the break-even point.

Question 8

Sensitivity analysis is a what-if technique that examines the impact of changes in assumptions.

Question 9

Multiple-product break-even analysis requires a constant sales mix, which is difficult to predict with certainty.

Question 10

Increased sales of high contribution margin products increase the break-even point.

Question 11

Under ABC, cost drivers are separated into unit-based and non-unit-based drivers.

Question 12

To earn a target profit, total costs plus the amount of target profit must equal total sales revenue.

Question 13

Cost-volume-profit analysis focuses on the break-even point and the impact of changes in fixed costs and price.

Question 14

The cost-volume-profit graph portrays the relationship between profits and sales volume.

Question 15

CVP analysis is a short-run decision-making tool since some costs are fixed.

Question 16

Increases in sales of low contribution margin products decrease the break-even point.

Question 17

The term net income is used to mean operating income before income taxes.

Question 18

The operating leverage shows how far the company's actual sales or units are from the break­even point.

Question 19

Sales revenue to earn target profits equals total fixed costs plus target profit divided by the contribution margin.

Question 20

When using either the equation or the contribution margin approach, the after-tax profit must be converted to a before-tax profit target.

Question 21

Biscuit Company sells its product for $50. In addition, it has a variable cost ratio of 55 percent and total fixed costs of $6,875. How many units must be sold in order to obtain a before-tax profit of $12,000?

A) 480 units
B) 240 units
C) 600 units
D) 839 units

Question 22

Biscuit Company sells its product for $50. In addition, it has a variable cost ratio of 45 percent and total fixed costs of $6,875. What is the break-even point in units for Biscuit Company?

A) 250 units
B) 3,600 units
C) 375 units
D) 2,400 units

Question 23

In multiple-product analysis, direct fixed costs can be to each segment.

Question 24

Target after-tax profit must be converted into profit to calculate units or revenue needed.

Question 25

Sales × Contribution Margin is a short-cut of what formula?

A) Sales - (Variable cost ratio × Sales)
B) Sales - (Fixed Costs + Variable Costs)
C) Sales / Fixed Costs
D) Fixed Costs / Unit Contribution Margin

Question 26

The break-even point is

A) the volume of activity where all fixed costs are recovered.
B) where fixed costs equal total variable costs.
C) where total revenues equal total costs.
D) where total costs equal total contribution margin.

Question 27

Increased sales of high contribution margin items the break-even point.

Question 28

In cost-volume-profit analysis income taxes the break even point.

Question 29

The use of fixed costs to increase the percentage changes in profits as sales activities change is called the
__________ leverage.

Question 30

The variable cost ratio

A) expresses variable costs as a percentage of total costs.
B) expresses the proportion between fixed costs and variable costs.
C) expresses variable cost in terms of sales dollars.
D) expresses the proportion of sales dollars available to cover fixed costs and provide for a profit.

Question 31

The ratio expresses variable costs in terms of sales dollars.

Question 32

When a company sells more units than the break-even point, the are positive.

Question 33

The is where total revenues equal total costs.

Question 34

Which of the following equations is CORRECT?

A) Sales revenues = Variable expenses - (Fixed expenses + Operating income)
B) Sales revenues - Variable expenses - Fixed expenses = Operating income
C) Sales revenues + Variable expenses + Fixed expenses = Operating income
D) Sales revenues - Fixed expenses = Variable expenses - Operating income

Question 35

The break-even point in units can be calculated using the contribution margin approach in the formula

A) Total Costs / Unit Contribution Margin.
B) Total Costs / Fixed Costs.
C) Fixed Costs / Selling Price per unit.
D) Fixed Costs / Unit Contribution Margin.

Question 36

If all else is the same, if the break-even point increases, then the variable cost per unit must have __________ .

Question 37

Which of the following is NOT a use of CVP (Cost-Volume-Profit) analysis?

A) the ability to conduct sensitivity analysis of cost or price changes
B) the identification of price and efficiency variances
C) how many units must be sold to break even
D) what is the impact on the break-even point of an increase or decrease in fixed costs

Question 38

Total contribution margin is calculated by subtracting

A) cost of goods sold from total revenues.
B) fixed costs from total revenues.
C) total manufacturing costs from total revenues.
D) total variable costs from total revenues.

Question 39

Biscuit Company sells its product for $50. In addition, it has a variable cost ratio of 45 percent and total fixed costs of $6,875. What is the break-even point in sales dollars for Biscuit Company?

A) $2,750
B) $3,125
C) $6,875
D)$12,500

Question 40

On a profit-volume graph, the line intersects the horizontal axis at the break-even point.

Question 41

Nonesuch Company sells only one product at a regular price of $7.50 per unit. Variable expenses are 60 percent of sales and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales. What is the contribution margin ratio when the selling price is reduced to $6 per unit?

A) 40%
B) 25%
C) 75%
D) 60%

Question 42

Hologram Printing Company projected the following information for next year: Selling price per unit $75.00
Contribution margin per unit $30.00
Total fixed costs $120,000
Tax rate 40%
How many units must be sold to obtain an after-tax profit of $67,500?

A) 3,750 units
B) 5,167 units
C) 5,625 units
D) 7,750 units

Question 43

Assume the following information:

A) 4,000 units
B) 2,750 units
C) 3,570 units
D) 3,750 units

Question 44

Jamie Quinn, a sole proprietor, has the following projected figures for next year: Selling price per unit $150.00
Contribution margin per unit $45.00
Total fixed costs $630,000
How many units must be sold to obtain a target before-tax profit of $270,000?

A) 6,000 units
B) 20,000 units
C) 8,572 units
D) 14,000 units

Question 45

Jamie Quinn, a sole proprietor, has the following projected figures for next year:

A) $426,000
B) $900,000
C) $189,000
D) $2,100,000

Question 46

Assume the following information:

A) $75,000
B) $300,000
C) $48,000
D) $12,000

Question 47

Which of the following items would NOT be considered in cost-volume-profit analysis?

A) units of production
B) fixed costs
C) product mix
D) gross profit margin

Question 48

Summersville Production Company had the following projected information for 2016: What is the contribution margin ratio?

A) 0.400
B) 1.667
C) 2.500
D) 0.600

Question 49

The income statement for Symbiosis Manufacturing Company for 2016 is as follows: What is the contribution margin ratio?

A) 30%
B) 60%
C) 100%
D) 40%

Question 50

In 2016, Samantha's Bath and Body Shop had variable costs of $27,000, fixed costs of $18,000, and a net loss of $4,500.
Samantha's 2016 break-even sales volume was

A) $36,000.
B) $54,000.
C) $49,500.
D) $37,500.

Question 51

Nonesuch Company sells only one product at a regular price of $7.50 per unit. Variable expenses are 60 percent of sales and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales. What is the sales dollars level required to break even at the old price of $7.50?

A) $50,000
B) $12,000
C) $18,000
D) $75,000

Question 52

In 2016, Samantha's Bath and Body Shop had variable costs of $27,000, fixed costs of $18,000, and a net loss of $4,500.
The annual sales volume required for Samantha's to have a before­tax income of $18,000 is

A) $126,000.
B) $84,000.
C) $73,500.
D) $42,000.

Question 53

The DesMaris Company had the following income statement for the month of November 2016: DesMaris Company Income Statement
For the Month of November 2016

A) 7,000 units.
B) 20,000 units.
C) 11,211 units.
D) 10,000 units.

Question 54

Summersville Production Company had the following projected information for 2016:

A) 2,000 units
B) 5,000 units
C) 3,333 units
D) 60,000 units

Question 55

The DesMaris Company had the following income statement for the month of November 2016: DesMaris Company Income Statement
For the Month of November 2016

A) 3,300 units
B) 10,000 units
C) 4,300 units
D) 7,300 units

Question 56

Summersville Production Company had the following projected information for 2016: What is the profit when one unit more than the break-even point is sold?

A) $60
B) $150
C) $1,500,150
D) $600,060

Question 57

Which of the following equations is TRUE?

A) Contribution margin = Sales revenue × Variable cost ratio
B) Contribution margin ratio = Contribution margin/Variable costs
C) Contribution margin = Fixed costs
D) Contribution margin ratio = 1 - Variable cost ratio

Question 58

Jamie Quinn, a sole proprietor, has the following projected figures for next year: Selling price per unit $150.00
Contribution margin per unit $45.00
Total fixed costs $630,000
What is the contribution margin ratio?

A) 0.300
B) 1.429
C) 0.429
D) 3.333

Question 59

The income statement for Symbiosis Manufacturing Company for 2016 is as follows: What is the contribution margin per unit?

A) $7.20
B) $1.20
C) $4.80
D) $120,000

Question 60

Summersville Production Company had the following projected information for 2016: What level of sales dollars is needed to obtain a target before-tax profit of $75,000?

A) $375,000
B) $625,000
C) $750,000
D) $937,500

Question 61

Which of the following statements is TRUE in a cost-volume-profit graph?

A) The slope of the total cost line is dependent on the variable cost per unit.
B) The total cost line normally begins at zero.
C) The total revenue line typically begins above zero.
D) The slope of the total revenue line is the contribution margin per unit.

Question 62

In a cost-volume-profit graph, the slope of the total revenue line represents

A) the selling price per unit.
B) the contribution margin per unit.
C) the variable cost per unit.
D) total contribution margin.

Question 63

Information about the Harmonious Company's two products includes: Monthly fixed costs are as follows:
If the sales mix in units is 50 percent Product X and 50 percent Product Y, the monthly break-even total sales dollars is

A) $75,000.
B) $318,746.
C) $275,000.
D) $315,000.

Question 64

In the cost-volume-profit analysis, income taxes

A) are treated as a fixed cost.
B) increase the sales volume required to break even.
C) increase the sales volume required to earn a desired profit.
D) are treated as a fixed cost.

Question 65

Product 1 has a contribution margin of $6.00 per unit, and Product 2 has a contribution margin of $7.50 per unit. Total fixed costs are $300,000. Sales mix and total volume varies from one period to another. Which of the following is TRUE?

A) At a sales volume in excess of 25,000 units of 1 and 25,000 units of 2, operations will be profitable.
B) The ratio of net profit to total sales for 2 will be larger than the ratio of net profit to total sales for 1.
C) The contribution margin per unit of direct materials is lower for 1 than for 2.
D) The ratio of contribution to total sales always will be larger for 1 than for 2.

Question 66

Information about the Harmonious Company's two products includes: What is the total monthly sales volume in units required to break even when the sales mix in units is 70 percent
Product X and 30 percent Product Y?

A) 4,333 units
B) 26,563 units
C) 8,667 units
D) 28,667 units

Question 67

In a cost-volume-profit graph,

A) the total revenue line crosses the horizontal axis at the break-even point.
B) beyond the break-even sales volume, profits are maximized at the sales volume where total revenues equal total costs.
C) an increase in unit variable costs would decrease the slope of the total cost line.
D) an increase in the unit selling price would shift the break-even point in units to the left.

Question 68

The following data pertain to the three products produced by Culdesac Corporation: 60%of all units sold are Product A, 30 percent are Product B, and 10 percent are Product C. What is the monthly break-even point for total units?

A) 60,000 units
B) 36,000 units
C) 45,000 units
D) 180,000 units

Question 69

Which of the following is a TRUE statement about sales mix?

A) Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell more of the high contribution margin product.
B) Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell more of the lower contribution margin product.
C) Profits will remain constant with an increase in total dollars of sales if the total sales in units remains constant.
D) Profits will remain constant with a decrease in total dollars of sales if the sales mix also remains constant.

Question 70

The following diagram is a cost-volume-profit graph for a manufacturing company: The difference between line AB and line AC (area BAC) is the

A) contribution ratio.
B) total variable cost.
C) contribution margin per unit.
D) total fixed cost.

Question 71

In multiple-product analysis, direct fixed costs are

A) fixed costs that are not traceable to the segments and would remain even if one of the segments were eliminated.
B) fixed costs which can be traced to each segment and would remain even if one of the segments were eliminated.
C) fixed costs that are not traceable to the segments and would be avoided if the segment did not exist.
D) the fixed costs which can be traced to each segment and would be avoided if the segment did not exist.

Question 72

On a profit-volume graph, the profit line intersects the horizontal axis at

A) the origin.
B) the break-even point.
C) a volume of 1,000 units.
D) a point where profit is greater than zero.

Question 73

Assume the following cost behavior data for Graphic Arts Company: Sales price $18.00 per unit
Variable costs $13.50 per unit
Fixed costs $22,500
Tax rate 40%
What volume of sales dollars is required to earn an after-tax income of $40,500?

A) $360,000
B) $90,000
C) $252,000
D) $495,000

Question 74

Victoria Company produces two products, X and Y, which account for 60 percent and 40 percent, respectively, of total sales dollars. Contribution margin ratios are 50 percent for X and 25 percent for Y. Total fixed costs are $120,000. What is Patricia's break-even point in sales dollars?

A) $328,767
B) $300,000
C) $342,856
D) $375,000

Question 75

Hologram Printing Company projected the following information for next year:

A) $200,000
B) $120,000
C) $300,000
D) $500,000

Question 76

The following diagram is a cost-volume-profit graph for a manufacturing company: Select the answer that best describes the labeled item on the diagram.

A) Area CDE represents the area of net loss.
B) Line AC graphs total fixed costs.
C) Point D represents the point at which the contribution margin per unit increases.
D) Line AC graphs total costs.

Question 77

In a cost-volume-profit graph, the total revenue line rises with a slope equal to

A) the selling price.
B) the contribution margin.
C) the variable cost per unit.
D) none of the above.

Question 78

Tiramisu Company projected the following information for next year: Selling price per unit $60.00
Contribution margin per unit $30.00
Total fixed costs $100,000
Tax rate 20%
How many units must be sold to obtain an after-tax profit of $40,000?

A) 3,750 units
B) 5,625 units
C) 5,000 units
D) 5,167 units

Question 79

Assume the following cost behavior data for Graphic Arts Company: Sales price $18.00 per unit
Variable costs $13.50 per unit
Fixed costs $22,500
Tax rate 40%
What volume of sales dollars is required to earn a before-tax income of $27,000?

A) $90,000
B) $180,000
C) $198,000
D) $270,000

Question 80

Sales mix refers to

A) the different volume of sales achieved during the year.
B) the contribution margins achieved on the different products during the year.
C) the relative proportions of different products that constitute total sales.
D) the mix of variable and fixed costs.